Featured Report: OSK on Pelikan Holdings

Pelikan was a stock that I had followed. The stock has had one nice run since March. Here are the postings I had made since March 2009.

• Some Comments On Pelikan Holdings
• More On Pelikan Again
• Yes, CIMB Did Downgrade Pelikan To Underperform

Today OSK featured a report on Pelikan.

Once again I was bemused at how quickly the 'value' of this company had changed from OSK's perspective.

Let's have a look at how OSK style of valuation on Pelikan Holdings since Jan 2009.

• Maintain NEUTRAL. We maintain our FY09 and FY10 forecasts at RM81.7m and RM86.8m for now,pending the release of its 4QFY08 results. The TP is unchanged at RM1.23 as the stock lacks near term catalysts, given that most of the European economies (its biggest export market) are in recession. While consumers may down trade to cheaper stationeries under the current environment, the business is somewhat defensive, further underpinned by Pelikan’s strong branding.

Jan 15th 2009. Maintain Neutral at 1.23.

March 2nd 2009. Pelikan announced huge quarterly losses.

• We cut FY09/10 forecasts by 30%, after factoring in lower sales, further contraction in margins and adjustments to depreciation and interest rates. TP has been reduced to RM1.00.

The cut their forecasts by a massive 30% and the Target Price (TP) has been reduced to 1.00 from 1.23.

However, since Pelikan had already fallen to a mere 0.97 sen, I guess there was some justification when OSK called Pelikan a neutral, despite the massive reduction in earnings forecasts and target prices.

However, the stock was punished severely by the market. Come 16th March 2009, Pelikan traded as low as 0.59 sen.

And OSK had no commentary.

On 14th April 2009, Pelikan had recovered to 0.89. OSK then decided to publish another report.

They cut the earnings and the target price is now only 0.80. Despite all this, again they maintain their call as NEUTRAL.

• Cutting earnings. We do not expect Pelikan’s performance to recover in the mid term as long as consumer sentiment in Europe remains subdued. Hence, we are slashing our FY09/10 forecast by an average of 38%, pegged at trough 0.45x P/BV. Based on the current share price, Pelikan is trading at the low valuation 0.5 P/BV. While this may indicates that the stock has been oversold, we are maintaining our NEUTRAL call as we believe that the selling pressure will persist on worse-than-expected results in the coming quarterly earnings and its still-high foreign shareholding level of 26%.

May 28th 2009. Pelikan announced its quarterly earnings and OSK had this to say.

• Maintain NEUTRAL. We maintain our earnings forecast but increased our TP to RM1.07 as we peg the stock at a higher PE of 6.5x FY10 EPS and 0.8x P/BV as we expect the economy to recover gradually in 2H09 and hence a recovery in its profit, leveraging on its strong worldwide brand and the fact that it is involved in selling basic necessities.

Earnings forecasts were maintained and they mainted their call at NEUTRAL but their target price had been increased from 0.80 to 1.07.

That's a 33.8% increase in target price (hope my calculator is not faulty!)

And they call it a NEUTRAL.

LOL!

And today, with Pelikan already trading at 1.24, OSK are calling it a BUY with a target price of 1.85!

I kid you not. :p2

• .... Given that much of the downside has been priced in, we now upgrade the stock to a BUY with a revised TP of RM1.85 (4-year historical average PE and P/BV of 9.5x and 1.5x respectively on FY10 forecast).

Huh?

Downside had been priced in?

Didn't Pelikan trade as low as 0.59 back in March? Now it's 1.24. LOL!

So let's summarise.

1. Jan 15th 2009. Maintain Neutral. Target Price at 1.23.
2. March 2nd 2009. Maintain Neutral. Target Price at 1.00.
3. April 14th 2009. Maintain Neutral. Target Price at 0.80.
4. May 28th 2009. Maintain Neutral. Target Price at 1.07.
5. July 20th 2009. BUY call. Target Price at 1.85.

How now my dearest?

Since Jan 2009, OSK had a target price for Pelikan from 1.23 to 0.80 to 1.85.

My oh my. Just love how OSK play with their target prices. LOL!

:D

This posting might interest you also: What Hope For Malaysian Investing Public When Research House Makes Such Calls?

More On Pelikan Again

I wrote on Pelikan a couple of times already and in my flawed opionion, I reckon that this stock could be interesting in the context of the posting Valuations Stretched To Unjustifiable Levels But....

March 20, 2009 Some Comments On Pelikan Holdings

Ok, CIMB had a trading buy on it because they reckon that the market was pricing Pelikan as if it was going to bust.

But the bottom line or the facts still remained that Pelikan fourth quarter earnings was utterly shocking as it lost a huge rm43.4 million. And here is the opening lines from a Edge Financial Daily write highlighted in the blog posting.

• PELIKAN’S recent fourth-quarter (4Q08) results came as a shocker and raised the spectre of worse to come, said CIMB Research in a note yesterday.
  
  While the RM43.4 million net loss for the quarter was a worry, the bigger concern is the 29% year-on-year (y-o-y) top line compression, which is a sign of just how bad the recession in Europe is, particularly in Germany, CIMB Research added.

Note Pelikan then was below 60 sen at 59.5 sen when CIMB wrote their report. When I posted the posting a couple of days later, the stock was at 70 sen!

Note the sticky issue of the disposal of shares by the Executive Chairman mentioned in that blog posting.

• Look at all the buy and sell transactions on the same days!! !What's up doc??? And then there are share buybacks done on 3rd March to 11th March which lapse with some of Mr. Loo's transactions!!

* cough *

On 2nd June 2009, I wrote an update Yes, CIMB Did Downgrade Pelikan To Underperform

• Upping target price. Although we are keeping our earnings forecasts, we are raising our target price from RM0.78 to RM0.92 as we narrow the discount to the 13x sector target P/E from 40% to 30%. The smaller discount reflects a lower equity risk premium in view of more bullish investor sentiment.
  • Downgrade to UNDERPERFORM. However, we are downgrading the stock from trading buy to UNDERPERFORM. The share price resurgence by more than 60% since our upgrade in mid-Mar has taken it past our target price. We think it is likely to underperform given the potential de-rating catalysts of i) weaker-than-expected revenue in 2Q09, ii) further economic slowdown in Europe and iii) unattractive dividend yields of around 2.7-3.0%.

Here is a fast snapshot Pelikan's earnings. Data is from KLSE Tracker.

Not exactly the worst set of earnings one would see but then it doesn't look like a set of earnings from a world class company, yes?

Now one could use Trailing Twelve Months earnings of 24.535 million as a gauge. Nothing wrong.

Now Pelikan has some 343.168 million shares. Trailing EPS based on earnings of 24.535 woud equate to some 7.1 sen. (Hmm.. KLSE probably missed out the dilution of EPS caused by Pelikan's ICULS.)

Pelikan last traded at 1.11, which works to an earnings multiple of around 15x. Not exactly cheap.

Now is Pelikan valuations stretched to unjustifiable levels using a TTM eps valuation?

For me, in my flawed opinion, because Pelikan earnings tanked big time in Q4 and also was rather poor in Q1 and when one compare Q4+Q1 and compare it to Q2, Q3. For example Q4+Q1 earnings, Pelikan's latest two quarters earnings, was a loss of 35.4 million. Q2+Q3 earnings were at 59.9 million. Too huge a difference.

Too simplify it more, the previous fiscal year 2008 Q2 Pelikan's earnings used to calculate the TTM were 44.160 million. Now Pelikan's last reported earnings 2009 Q1, Pelikan made only 8.022 million. To expect Pelikan to record an earnings of 44.160 million for the next quarterly earnings given current economic envirobment would probably be very far fetched. Of course I could be flawed. :p

Anyway, let's assume. Give it all the benefit of the world and Pelikan records a 200% increase for its next quarter. :p

So let's assume Pelikan makes 24 million.

Fair?

So Pelikan's next quarter TTM could be something like this: 24 million + 15.773million + (-43.42)million + 8.022 million = 4.375 million only!

Which would equate to an eps of 1.3 sen only!! oO

And this is with an 'assumed' 200% increase in earnings on a q-q basis!

Rather stretched valuations eh?

Of course, there would some that say that using TTM earnings is simply bullocks! This is because it's still rather too rear-view-mirror-ed.

Yes, I would agree for the markets, they like to price the stock's based on forward estimations.

Well.. how then would you want to estimate Pelikan's earnings?

Well.. take OSK.

• Maintain NEUTRAL. We maintain our earnings forecast but increased our TP to RM1.07
  as we peg the stock at a higher PE of 6.5x FY10 EPS and 0.8x P/BV as we expect the
  economy to recover gradually in 2H09 and hence a recovery in its profit, leveraging on its
  strong worldwide brand and the fact that it is involved in selling basic necessities.

OSK's estimate earnings for Pelikan in fy10 is some 37.8 million. Rather fair imo. CIMB's estimated earnings is some 34 million for Pelikan's fy10.

And here is how Pelikan is doing.

Last but not least, the sticky issue is again the rather huge disposal of shares by the Executive Chairman again during this Pelikan impressive stock performance.

For example, on the 8th June 2009, the following transactions reported.

• Disposed 27/05/2009 50,000
  Acquired 28/05/2009 6,500
  Disposed 28/05/2009 10,700
  Acquired 29/05/2009 154,000
  Disposed 29/06/2009 1,518,500 (hmm... this should read 29/05/06!)
  Disposed 01/06/2009 292,800
  Disposed 02/06/2009 90,000
  Disposed 03/06/2009 60,000

Again.. if you are a looooooooong term investor, surely you would want to know why! And why the buying and the selling of shares? What's happening?

Some Comments On Pelikan Holdings

Pelikan Holdings.

A rather branded corporate listed in Malaysia.

This is how the stock would have looked on March 10th 2009.

Yes sir, the stock had a high of 5.80 in July 2007 and in March 2009, this stock could be purchased for under 65 sen!

I was curious.

Monday February 9, 2009: Slower sales for Pelikan this year

• PETALING JAYA: Pelikan International Corp Bhd expects slower sales this year owing to the global economic turmoil which would inevitably erode demand.
  
  It does not help matters that its largest market, accounting for close to 40% of total group sales is Germany, which slipped into recession in November.
  
  Despite this, senior vice-president (corporate planning) Ng Cheong Seng remains cautiously optimistic.....

27th Feb 2009. Pelikan reported its earnings: Quarterly rpt on consolidated results for the financial period ended 31/12/2008

Pelikan lost 43.420 million!

Company said the following.

On the 16th March CIMB wrote some bullish notes on Pelikan and it was published on the Edge, CIMB upgrades Pelikan to trading buy

• CIMB upgrades Pelikan to trading buy
  Written by Financial Daily
  Tuesday, 17 March 2009 11:14
  
  PELIKAN’S recent fourth-quarter (4Q08) results came as a shocker and raised the spectre of worse to come, said CIMB Research in a note yesterday.
  
  While the RM43.4 million net loss for the quarter was a worry, the bigger concern is the 29% year-on-year (y-o-y) top line compression, which is a sign of just how bad the recession in Europe is, particularly in Germany, CIMB Research added.
  
  “The dismal results clearly show that we had underestimated the economic downturn in Europe. A few months back, we had sliced 10%-12% off our FY09-FY10 revenue forecasts in anticipation of weaker sales growth. Clearly, it was not enough. There is no sign of relief on the horizon as IMF projects a 2% economic contraction in Europe in 2009, after 0.7% growth in 2008. More than 80% of Pelikan’ revenue comes from Europe,” it explained.
  
  Pelikan’s share price has lost 90% of its value from the 2007 peak and it looked like the market is pricing Pelikan to go bust. However, CIMB felt that this was unlikely. “Net gearing as at end-08 is 0.5 times and with no major capex plans this year, net gearing should fall to 0.3 times. Valuation is at distressed levels, at only 0.4 times price-to-book value (P/BV).”
  
  CIMB maintained its earnings forecast for Pelikan but slashed its target price to 78 sen from 92 sen as it widened the discount to the 13 times sector target price earnings (PE) to 40% from 30%. However, it upgraded the stock to a trading buy from an underperform.
  
  “The wider discount reflects earnings worries for Pelikan if European economies lose more ground in the next few quarters. However, after the stock’s sharp 38% price decline this month, we believe most of the bad news has already been reflected in its share price,” said the research house.
  
  Pelikan was flat at 59.5 sen yesterday.

However if one looks at the shareholder transactions, one is likely to be confused on what's happening.

Changes in Sub. S-hldr's Int. (29B) - PBS Office Supplies Holding Sdn Bhd

And look at the following transactions from Executive Chairman Loo Hoo Keat.

Changes in Director's Interest (S135) - Loo Hooi Keat

Look at all the buy and sell transactions on the same days!!!

What's up doc???

And then there are share buybacks done on 3rd March to 11th March which lapse with some of Mr. Loo's transactions!!

How doc?

But CIMB has a trading buy!!!

See the Edge article again. Stock was flat at 59.5 sen on 16th March 2009.

Today? Pelikan last traded at 70 sen!